The Issue Of Independence And Potential Issues

THE ISSUE OF INDEPENDENCE AND POTENTIAL ISSUES Prepared by: (Student’s Name) Class Professor’s Name Institution City and State of Location Date The Issue of Independence and Potential Issues Introduction Independence refers to quality possessed by people as an important professionalism component and a professional behavior (Campbell, 2011, p.1). Independence also means avoiding being unduly, an element that influenced by an interest that is vested and being free from all constraints that may prevent a right undertaking from being adopted (Nordberg, 2011). This ability helps individuals to stay away from badly chosen influences, to remain free from managerial capture, and to make the correct and untainted decision on every issue. Such makes the idea of independence a critical concept. This concept is listed as a key underpinning of corporate governance. Specifically, internal and external auditors need to possess this crucial quality as an ethical aspect. Corporate Governance In the corporate world of governance, independence is important several contexts. For instance, this concept is essential because it is vital for external auditors to be independent of their clients. It is also vital that internal auditors act independently of the firms which hire them (Bloomfield, 2013). For example, if a client hires an auditor who is a longstanding friend, the auditor is more likely to insufficiently independent when auditing. The auditor is morally expected to represent his or her shareholders by acting on their behalf and their interests and not his or her client. It means that a friendship with his or her client could compromise the ability of the auditor to effectively his or her job. The auditor could be careless or give his or her client a benefit of a doubt which is not right. More importantly, it is important that the non-executive directors (NEDs) have a level of independence, especially from their colleagues (executive) on a board. To emphasize this point, NEDs are known as independent directors in some countries. Shareholders appoint to represent their interests on the boards of their companies (Roberts, McNulty & Stiles, 2005). It is clear that the NEDs' primary fiduciary duty is to the shareholders. Therefore, NEDs must not let themselves to be unduly influenced or captured by the clouding interests that come from other company members such as the executive directors, middle management, or trade unions (Muravyev, Talavera & Weir, 2016). Issues: The Level of Independence Most of the organizations face a common problem which is ensuring independence (at a level) where its absence could present significant ethical threat. Under normal circumstances, networks and friendships build up with time years from relationships at numerous different intensity levels (Solomon, 2013). For instance, audit appointment partners can end up knowing clients well enough over countless years of engagement such as serving together on company boards can strengthen friendships bonds between executive board members and the NEDs. The degrees of independence vary from one company to another and Just Eat is not an exception. Using continua, we can identify and describe independence as a variable. This theoretical construct can describe the two extremes of independence as well as a range of potential states between them. This can include two extreme points: "Total independence" and "zero independence" extremes (Campbell, 2011, p.2). At the point of total independence, there is no connection between the parties in this relationship. They may also fail to know one another's identity which means they are highly likely to act in a total composed independence. The other extreme indicates that the parties have an intimate relationship and are unable to act without factoring in the impact of their decision on their counterparts. Under normal circumstances the real level of independence lies somewhere between two extremes. However, Peter Plumb and Just Eat should maintain an actual position should be as close to the "Total independence" continuum as possible. This creates a desirable situation for any company, especially those that are facing independence issues like Just Eat PLC's. Self-review, self-interest, advocacy, familiarity, and intimidation (key ethical threats) can reduce or undermine the independence of person (Campbell, 2011, p.2). There are situations where the corporate governance codes or the company law provide provisions to minimize such threats. However, often than most, the company should rotate or alternate engagement partners after some years of auditing relationship. Independence and NEDs Dealing with NED independence is a challenging task. For instance, some shareholders even bring in new NEDs who they source from other competing industries to increase NED independence. This can help a lot in avoiding the informal networks that threaten independence which upsurges in the industry over years (Campbell, 2011). These networks can build very fast because staff changes employers and join competitors making increasing the risk (Said and Mellett, 2013). The staff members also collaborate in labor or "umbrella" unions regularly. The management should utilize the strengths provided by members of the board who come from a different indust...